In the area of corporate finance, there is no more dramatic and controversial activity than the acquisition of one company or the merger of several. They are an amazing source of scandals. When one company acquires another, it makes an investment that, of course, is made under conditions of uncertainty. In this case, the basic valuation principle applies: a company can be acquired if it generates a positive net present value for the shareholders of the company making the acquisition. However, since this net present value of an acquisition prospect is very difficult to determine, mergers and acquisitions are, by all rights, relevant and novel topics.
The benefits from acquisitions are called synergies, it is difficult to estimate synergies by using discounted cash flow. For this, there are complex accounting, tax and legal methods when a company makes an acquisition. Acquisitions and mergers are important control devices for shareholders. Some may be the consequence of a fundamental conflict between the interests of the current administrators and the shareholders involved; acquiring the company, the shareholders can change the policies, modify the organizational structure, among others of the company to acquire it.
Sometimes mergers and acquisitions involve not very friendly transactions, therefore, it is necessary to put into practice a complete plan of the tactics, strategies, causes and consequences of a possible negotiation between the parties.
Merger Concepts
- The Merger constitutes an operation used to unify investments and commercial criteria of two companies of the same branch or of compatible objectives. A Merger constitutes the absorption of one company by another, with the disappearance of the first, and carried out through the contribution of the assets of This to the second company. The Merger can also be done by creating a new company, which, by means of contributions, absorbs two or more pre-existing companies. The Merger is the meeting of two or more independent companies in one. The French jurisconsult Durand states that the Merger "is the meeting of two or more pre-existing companies,either one or the other is absorbed by the other or they are confused to constitute a new subsisting company and the latter inherits the rights and obligations of the intervening companies universally.There is a merger when two or more pre-existing companies dissolve without liquidation, to constitute a new one, or when an existing one absorbs another or others that, without being liquidated, are dissolved. Roberto Montilla Molina believes that “a special case of the dissolution of companies is constituted by the Merger, through which a company is extinguished for the total transfer of its assets to another pre-existing company, or that is constituted with the contributions of the assets of two or more companies that merge into it.The Directive created by the Council of Ministers of the European Economic Community,defines the Merger as the “operation by which one company transfers to another, followed by a dissolution without liquidation, all of its assets and liabilities, by attributing to the shareholders of the absorbed company (ies) (s) of shares of the absorbing company. ”It is the agreement of two or more legally independent companies, by which they undertake to pool their assets and form a new company. Any combination that results in an economic entity from two or more entities prior to the combination.It is the agreement of two or more legally independent companies, by which they commit to pool their assets and form a new company. Any combination that results in an economic entity from two or more entities prior to the combination.It is the agreement of two or more legally independent companies, by which they commit to pool their assets and form a new company. Any combination that results in an economic entity from two or more entities prior to the combination.
Fusion Characteristics
- Pooling by two or more companies of all their assets with the taking of the liability, already producing the creation of a new company, already making consensual contributions to a pre-existing (absorbent) company and increasing its capital in the event that the net asset exceeds its subscribed capital The disappearance of the contributing company (ies) or absorbed (s) The attribution of new social rights to associates of the disappeared companies According to the opinion of Dr. José Luis Taveras, "the Fusion is characterized by:
Dissolution of the absorbed company that disappears as a legal entity. Transmission of the universality of the assets of the absorbed company to the absorbing company. The shareholders of the absorbed company become partners of the absorbing company. Mergers are operations generally carried out in periods of economic expansion or crisis Taking into account the definition of Merger given by the Directive created by the Council of Ministers of the European Economic Community, the following characteristics can be established:
- The transfer of all the assets and liabilities of the absorbed companies to the absorbing company or of the companies to be merged into the new company.
- The dissolution without liquidation of the absorbed companies to be merged. The immediate attribution to the shareholders or of the absorbed companies or of the merging companies of shares of the absorbing company or of the new company and eventually of an indemnity or compensation in kind that does not exceed 10% of the nominal value of the shares attributed or, in default of nominal value, for its accounting part.
Classification of mergers
- According to the French Commercial Code, the Merger can be of two types:
Pure fusion. Two or more companies come together to form a new one. These dissolve, but are not liquidated.
· Fusion by absortion. One company absorbs another or other companies that are also dissolved but not liquidated.
- According to Tellado Jr. (1999), he considers that the Merger can be carried out in two ways:
- Merger "By Combination". Also called Merger itself, it consists of two or more companies coming together to form a new one. These are dissolved simultaneously to form a company formed by the assets of the previous ones, by attributing shares of the resulting company to the shareholders of the dissolved companies. The dissolution of the merged companies, if it is prior to the formation of the new company, may be agreed under the suspensive condition of the Merger. Merger "By Annexation". One or several companies dissolved for it, contribute their assets to another already constituted and with which they form a single body. The absorbing company has increased its capital by creating shares that it attributes to the shareholders of the attached companies, representing the contributions made for the Merger.Mergers can bring together companies in the same way or in different ways. But a Merger between a society and an association would not be possible.
- Horizontal fusion. Two companies that both compete in the same branch of trade. Companies occupy the same line of business, and basically merge because: Economies of scale are their natural objective; The highest concentration in the industry is Vertical Fusion. One of the companies is a client of the other in a branch of commerce in which it is a supplier. The buyer expands backwards, towards the source of raw materials, or forwards, towards the consumer. These companies neither compete, nor is there any business relationship between them. The architects of these mergers have noted the economies of sharing central services such as administration, accounting, financial control, and general management.
Basic forms of acquisitions
- Merger or consolidation: Consolidation is the same as a merger except for the fact that a totally new company is created, since both the one that acquires and the acquired one ends their previous legal existence and become part of the new company. In a consolidation, the distinction between the company making the acquisition and the company that acquired is not of importance; however, the rules that apply are basically the same as mergers. Also, in both cases, the acquisitions result in various combinations of the assets and liabilities of the two companies. Acquisitions of shares: consists of buying the shares with the right to vote, giving in exchange cash, capital shares and other securities.The purchase procedure usually begins with a private offer affected by the administration of one company to another. The offer is communicated to the shareholders of the company set as the target of acquisition by means of public announcements, such as the placement of advertisements in newspapers.Acquisition of assets: these acquisitions involve the transfer of property titles. The procedures can be expensive. A company may acquire another company by purchasing all of its assets and this will require a formal vote by the shareholders of the selling company.These acquisitions involve the transfer of property titles. The procedures can be expensive. A company may acquire another company by purchasing all of its assets and this will require a formal vote by the shareholders of the selling company.These acquisitions involve the transfer of property titles. The procedures can be expensive. A company may acquire another company by purchasing all of its assets and this will require a formal vote by the shareholders of the selling company.
- Merger by Incorporation: It is when two or more existing Institutions meet to constitute a newly created Institution, causing the extinction of the Legal personality of the incorporated Institutions and the universal transfer of their assets to the new society. Merger by Absorption: It is when one or more institutions are absorbed by another existing institution, causing the extinction of the legal personality of the absorbed institutions and where the absorbing institution assumes the new society universally from its assets.
Bank Mergers
It is the Union of 2 or more entities, either by Incorporation or Absorption, for the benefit of a new society that replaces existing ones, or it can be said that it is the union of 2 or more social assets whose owners disappear to give birth to a new one or when a holder survives it absorbs the patrimony of each and every one of the others; in both cases the entity is made up of the same partners that constituted the previous entities and those receive new titles to replace the ones they owned.
Every Bank Merger that takes place in Venezuela emerges as a solution to the problems of the Institutions and the financial system. These mergers are positive for the consolidation of the financial system, which has been so deteriorated and this for approximately seven years, this is even more noticeable in such a small market in Venezuela when compared to other countries.
Mergers are not a miracle solution to banking inefficiencies. If there is no reliable solidity in organizations wishing to merge, perhaps they would point only to the sum of inefficiencies in an organization that, being older, would be roundly unmanageable.
Mergers are convenient in cases where entities previously exhibit an indispensable degree of health in their balance sheets (that is, do not make it up as they have often done and it has been proven), effective rationalization of transformation expenses, excellent risk management, ability to respond appropriately with minimum costs and maximum effectiveness to changes in the environment, solid heritage, quality of service and cost reduction.
Only then can translatable mergers be carried out into an efficient structure that rationalizes costs and brings benefits to the saver public and to market stability.
Advantages and disadvantages of bank mergers
| Advantage | Disadvantages |
| - Improves the quality of the Banking Service.
- Transformation costs drop. - Lower operating and production costs. - Strength and Prestige in the Financial Market. - Competitiveness in the Financial Market. - More methodical administration and centralized supervision. |
- Lower Labor Liabilities (Mass Layoffs)
- Depending on how the country's economy, merger will be a good strategy. - Creation of monopolies and oligopolies - Possible panic and confusion of the public - The loan portfolio at issue and delayed at the time of merging. |
Effects of bank mergers
1. Creation of a new company name, resulting from the dissolution of two or more entities requesting the Merger, which implies the joint transfer of their respective capitals of the entity with the new company name, which will also acquire all of the rights and obligations of the merged institutions.
2. Absorption of one or more institutions by another, which will entail the disappearance of the absorbed entity (ies) and the transfer of the universality of its capital (ies), assets and liabilities to the absorbing entity.
3. Purchase of all the shares of the absorbed entity by the absorbing entity. As a consequence of this operation, and after verification of the fact by means of a notarial deed and having completed the formalities established in the Commercial Code and in the current legal provisions, the assets and liabilities of the absorbed entity will be integrated into the capital of the absorbing entity, the first being dissolved and liquidated as a matter of law.
Fuente synergizes in mergers and acquisitions.
Within the possible sources of synergy there are four basic categories, namely:
1. Improved income:
An important reason for acquisitions is that a combined company can generate more income than two separate companies. Income increases can come from marketing gains, strategic profits, and market power.
to. Marketing Gains: It is often claimed that acquisitions and mergers can produce higher operating income as a result of marketing activities. Such improvements can be made in the following areas:
- About previous inefficient programming in the media and advertising efforts. In today's weak distribution networks. In the unbalanced product mix.
b. Strategic benefits: Some acquisitions herald a strategic advantage. This is an opportunity to take advantage of the competitive environment if certain situations materialize. Strategic profit is more of an option than a standard investment opportunity. Michael Power (1985) uses the example of the acquisition of the Carmine Paper Company from Procter & Gamble as a point of advance that allowed the latter to develop a highly interrelated conglomerate of paper products: disposable diapers, paper towels, products of feminine hygiene and tissue paper.
c. Market or monopoly power: one company can acquire another to reduce competition. If so, prices can be increased to achieve monopoly profits. Mergers that reduce competition do not benefit society. Empirical evidence does not indicate that increasing market power is a significant reason for mergers. If monopoly power is increased through an acquisition, all companies in the industry should benefit as the price of the product of the industry increases.
d. Cost Reduction: One of the basic reasons for merging is that one company can operate more efficiently than two separate companies. Thus, for example, when Bank of America agreed to acquire Security Pacific, it cited the possibility of lower costs as the main reason. Through a merger or acquisition, a company can achieve greater operating efficiency in various areas or functions.
and. Economies of scale: If the cost of production decreases as the level of production increases, an economy of scale is said to have been achieved. Economies of scale grow to their optimum level. After that point, diseconomies of scale occur, that is, the average cost increases after exceeding that point.
Scale economics
F. Economies of vertical integration: from vertical as well as horizontal combinations, operating economies can be obtained. The main purpose of vertical acquisitions is to facilitate the coordination of closely related operational activities. Technology transfer is another reason for vertical integrations.
g. Complementary resources: some companies acquire others to make better use of current resources or to have the missing elements for success.
h. Elimination of efficient administration: there are certain companies whose value can increase with change of administration. In some cases, managers do not understand the nature of changing conditions, they cannot abandon the strategies and styles they have formulated over the years.
2. Tax Earnings:
Tax earnings can be a powerful incentive to make some acquisitions. Among them can be mentioned:
- Use of tax losses derived from net operating losses: sometimes companies have tax losses that they cannot take advantage of, these are called net non-operating losses.Using unused borrowing capacity: because some degree of Diversification When the companies merge, the cost of the financial reorganization is likely to be less for the combined company than it is the sum of their values for the two separate companies. Therefore, the acquiring company could increase its debt-to-equity ratio after a merger, generating additional tax benefits and additional value. Surplus Employment: Another gap in the law relates to surplus funds. It occurs in the case of a company, for example,have a cost-free cash flow, that is, available after taxes are paid and after all projects with a positive net present value have been considered. In this situation, the purchase of fixed income securities, the company would have several ways to spend that surplus, such as: payment of dividends, repurchase of shares or acquisition of shares of another company.
3. Capital costs:
The cost of capital can often be reduced when two companies merge because the costs of issuing securities are subject to economies of scale. The costs of both a debt and equity issue are much lower for both larger and smaller issues.
Calculation of Synergy from an Acquisition
Suppose Company A plans to acquire the company B. The value of A is V A and V B is B. The difference between the value of a combined company (V AB) and the sum of the values of the companies as separate entities is the synergy that results from the acquisition:
Synergy = V AB - (V A + V B)
It is common for the acquiring company to pay a premium for the acquired company. For example, if the shares of the company set as the acquisition target are traded at $ 50 each, the buyer could pay 60, which would imply a premium of $ 10, or 20%. Obviously, company A wanted to determine synergy before beginning negotiations with B regarding the premium. The synergy of an acquisition can be determined from the general discounted cash flow model.
Synergy
Merger Mechanics
To carry out a bank Merger there must be a Merger plan that will contain the following:
- Timeline for the execution of the Merger plan, clearly and precisely indicating the stages and periods in which it will be carried out and who is responsible for its execution. Economic-financial foundations of the Merger. Analysis of the impact of the Merger in the legal, financial and accounting areas and legal.Diagnosis and programs in the areas of technology, human resources, administration and operations.Proforma financial statements of the Merger, this is how it is estimated to start after the Merger has been carried out.A shareholding structure that will have the financial entity resulting from the Merger once carried out this process. Relationship of the links or links of any kind including, blood relationship or affinity between the shareholders. Copy of the draft articles of association of the entity resulting from the Merger.
Merger Base Agreement.
It constitutes the first step to carry out the Merger. This must be approved by unanimous consent of the shareholders of the companies to be merged; This approval arises as a consequence of the merger involving the transfer to another company of the capital contributed by the shareholders; or by the Board of Directors, when empowered by the statutes of the company for it.
An original, of identical tenor, must be made for each company interested in the Base Merger Contract and also a number of originals necessary for registration and publication.
Project, Preliminary Draft, Provisional Treaty or Merger Protocol. The steps of the Merger begin with the existence of acts prior to the final act itself.
The Administrators or the Directors of the companies that participate in the Merger will have to draft and sign a Merger Project, subject to the approval of the General Shareholders' Meeting of the companies to be merged. However, when it is approved by the Extraordinary Assembly, it automatically becomes the definitive Merger Agreement.
The Merger Project must comply with the advertising formalities and with other required formalities to any statutory modification of the joint stock companies. The content of the Merger Protocol must, at least, contain the following mentions and matters:
- Statement of the reasons for the planned operation, as well as the purpose, conditions and fundamentals of the Merger. Take into account the balance of the contributions of the absorbed companies, the delivery of shares, the capital increase of the Absorbing company and the terms or terms that are foreseen to carry out the different operations. Survey of the balance of the value of the two companies, clearly including their assets and liabilities, with a view to protecting creditors and partners. Dates of the financial statements of the companies involved. Indicate the date from which the operations of the absorbed company must be considered as carried out by the absorbing company. Information to the shareholders about the Merger. Shareholders must be aware of the following documents:Merger Project, Reports of accounting experts on the Merger Project, Reports of the Administrators or Board of Directors of each of the companies on the Merger Project, Balance of each of the companies, Draft of the new constitution and Statutes in force of the companies participating in the Merger.
Dissolution of the Absorbed Companies.
The Merger is equivalent to an early dissolution of the absorbed company.
The following consents are required:
- Shareholders: Who make their decision in an Extraordinary Meeting, relying on the reports of the Board of Directors and the company's Commissioners. Creditors General Assembly. The representative of the absorbed company will make the active contributions of said company with the commitment to pay its liabilities, if this is agreed, on condition of an allocation of new shares of the absorbing company that will be created as an increase in share capital. This contribution will appear in an authentic act, under a notarized declaration, in several originals and will be provisionally approved by a representative of the absorbing company. Extraordinary General Assembly of Shareholders of the absorbing company,will deliberate and decide on the capital increase for the creation of shares in representation of the contributions in nature of the absorbed company and vote on the modifications that are caused by the capital increase. Publication of the Capital Increase. The advertising formalities established in articles 42, amended by Law 1041, and 46 of the Commercial Code must be observed. When the company to be absorbed has real estate, its transfer must be registered or transcribed with the deliberations and documentation related to those contributions.When the company to be absorbed has real estate, its transfer must be registered or transcribed with the deliberations and documentation related to those contributions.When the company to be absorbed has real estate, its transfer must be registered or transcribed with the deliberations and documentation related to those contributions.
Fusion by absortion. Preparatory Phase of Absorption Merger
Formalities. When the Merger is carried out by means of the absorption of a company by shares by another already existing, the same formalities prescribed by law for the capital increase, with contribution in nature of a company, must be applied to the absorbing company, which are the following:
- An Extraordinary General Meeting is called, which will decide the increase and create the shares that will be attributed on behalf of the contribution made by the absorbed company. It will also make the statutory modifications that are the consequence of the increase. The formalities to be fulfilled by the company which is attached to the other, are the following:
The Extraordinary General Shareholders Meeting pronounces the early dissolution of the company. It designates the liquidators and empowers them to contribute the assets of the company to the absorbing company, through the attribution to the shareholders of shares of the remaining company.
Merger by the Constitution of a New Company
Formalities. When the Merger is carried out through the creation of a new joint stock company, the same formalities prescribed by law must be fulfilled for the constitution of a stock company.
- Base Agreement. Provisional agreement that usually intervenes between the Boards of Directors or the representatives of the companies to be merged. It can be done authentically or under private signature. The Shareholders Assembly may decide by the contributions of assets and liabilities, that the company be dissolved and appoint the liquidators in advance. Merger Project. It must be drafted by the Administrators of the companies to be merged and must be approved by the General Meeting of said company; otherwise, if the statutes do not grant it that power, the unanimous consent of the shareholders will be necessary.It can also be resolved that by the mere fact of the Merger the company will be dissolved and the board will appoint the liquidators, or, if it is preferable, the early dissolution of the company can be agreed,empowering the designated liquidators to operate the Merger. This Project must contain, at least, the same mentions as for the Merger by Absorption Merger Project. The statutes of the new company to which the representatives of each company will make their contributions in exchange for an attribution of Actions. This company will be made up of the assets of the mergers, contributed by their representatives through the allocation of shares to the shareholders of the merging companies, in the agreed proportion. The shares representing this capital must be subscribed and paid in the terms established by law and the subscriptions and verifications must be verified by a notarial declaration. General Assembly.A General Assembly of Shareholders appoints the first Commissioners, unless the statutes appoint them. The liquidators of the dissolved and liquidation companies are qualified to execute the Merger acts without the need for the shareholders to intervene personally. The shareholders of the merged companies must be considered as shareholders of the new company and may be appointed Administrators. Publication and Registration. The Merger requires the publicity provided by articles 42, modified by Law No. 1041, and 46 of the Commercial Code. The following shall be attached to the company's constitutive document: Evidence of the document granted before a notary public that proves the subscription of the share capital and the payment of the shares.verifying the truth of the founders' statements. This according to articles 51, 56 and 57 of the Commercial Code. Certified list of subscriptions, certified.
Bankruptcy And Reorganization
Companies that are unable to meet contractual payments agreed to by creditors or who make the decision not to make such payments have two basic options: liquidation or reorganization.
Liquidation refers to the settlement of a company as a going concern: it involves the sale of the business assets at their salvage value. The funds obtained, after deducting the costs of the legal proceedings, are distributed among the creditors in the order of the established priorities.
Reorganization is the option of keeping the company as a going concern; sometimes it involves issuing new titles to replace old titles.
Liquidation and formal reorganization can be done through bankruptcy. Bankruptcy is a legal procedure that can be carried out voluntarily when the corporation files a petition about it or involuntarily when the creditors file said petition.
Causes And Symptoms Of Bankruptcy
A company is considered technically insolvent if it is unable to meet its current obligations; however, this insolvency may be temporary and can be remedied. Therefore, technical insolvency only shows a lack of liquidity. On the other hand, insolvency in bankruptcy means that a company's liabilities exceed its assets; in other words, the company's stockholders' equity is negative. Financial failure includes the full scale of possibilities between these extremes.
The remedies for saving a troubled company vary in severity according to the degree of financial difficulty. If the prospects are desperate enough, liquidation may be the only feasible alternative. With some hope (and luck) many troubled companies can rehabilitate for the benefit of creditors, shareholders, and society. Although the main purpose of a liquidation or rehabilitation is to protect creditors, the interests of the owners are also taken into account. Despite this, legal procedures favor creditors. Otherwise, they would hesitate to grant credit and the allocation of funds to the economy would not be efficient.
Although the causes of financial hardship are numerous, many failures are directly or indirectly attributable to management. It is very rare that a bad decision is the cause of the difficulty; normally the cause consists of a series of errors and the difficulty gradually evolves. Because warnings of probable problems are evident before failure occurs, the creditor must be able to take corrective action before failure occurs. Many companies can be kept as going concern and can make a financial contribution to society. Sometimes rehabilitation is hard, depending on the degree of financial difficulty. However, these measures may be necessary if the company wants to extend its life.
Voluntary Arrangements
An extension is nothing more than the postponement by the creditors of the maturity of their obligations. In cases of temporary insolvency of a company that is otherwise healthy. Creditors may prefer to resolve the problem with the company. By not forcing the problem with legal proceedings, creditors avoid significant legal expenses and the possible decrease in the liquidation value.
Furthermore, they maintain their full rights against the company in question; they do not agree to a partial settlement. The ability of creditors to recover the full value of their rights depends, of course, on whether the company improves its operations and its liquidity. In an extension situation, existing creditors are often unwilling to grant additional credit on new sales and insist that current purchases be paid for in cash. It is obvious that no creditor will grant the extension of an obligation if the others do not also. Consequently, a committee of creditors is normally formed by the main creditors to negotiate with the company and formulate a plan that is satisfactory to all involved.
No creditor is obligated to follow the plan. If there are disgruntled creditors and their rights are small, they may be liquidated by others in order to avoid legal proceedings. The number of discontents cannot be too great, since the remaining creditors in essence have to assume their obligations. Clearly, creditors can create controls over the company that ensure proper management and increase the likelihood of a speedy recovery. They may also choose to insure whether there are negotiable assets. The final threat from creditors is to initiate bankruptcy proceedings against the company and compel its liquidation. By granting an extension they show an inclination to cooperate with the company.
Composition
The composition includes a pro rata settlement of the creditors' rights in cash or in cash and promissory notes. Creditors need to agree to accept a partial settlement as payment of your full claim.
As in the extension, all creditors have to agree to the liquidation. You need to pay all of your debt to disgruntled creditors or they may force the company to file for bankruptcy. They can present a major problem and avoid a voluntary arrangement. In general, voluntary arrangements can be advantageous to creditors as well as debtors, as legal expenses and complications are avoided.
Liquidation Through Voluntary Arrangement
In certain circumstances, creditors may feel that the company should not be retained since it seems inevitable that its financial situation will continue to deteriorate. When liquidation is the only realistic solution, it can be done through a private agreement or through bankruptcy procedures. Private orderly settlement is likely to be more efficient and a much higher payment result. This type of voluntary liquidation is known as an assignment. The private arrangement can also be made through the formal transfer of assets to a designated trustee. The trustee liquidates the assets and distributes the proceeds from their sale to creditors on a pro rata basis. Because the voluntary agreement has to be agreed by all creditors,it is generally restricted to companies with a limited number of creditors and with securities that are not held by the public.
Reorganization Procedure
The best thing for all concerned might be to reorganize a company rather than liquidate it. From a conceptual point of view, a company should be reorganized if its economic value as an operating entity is greater than its liquidation value. It must be settled if the opposite is true, that is, if it is worth more dead than alive. Reorganization is an effort to keep a company operating through changes in its capital structure. Rehabilitation includes reducing fixed charges for capital substitution and limited income values with fixed income values.
Procedures
The debtor or creditors file an application and the case begins. The idea in a reorganization is to keep the business going. In most cases, the debtor will continue to run the business, although a trustee may assume operational responsibility for the company. One of the great needs in rehabilitation is provisional credit.
If a trustee is not named, the debtor has the sole right to prepare a reorganization plan and submit it within 120 days. Otherwise, the trustee has a responsibility to ensure that a plan is submitted. It can be prepared by the trustee, the debtor, the creditors' committee or individual creditors and more than one plan can be presented. All reorganization plans have to be presented to creditors and shareholders for approval. The role of the court is to review the information in the plan, to ensure that the presentation is complete.
It is a reorganization, the plan has to be fair, equitable and feasible. This means that all parties have to be treated fairly and equitably and that the plan is achievable with respect to the profit-making ability and financial structure of the reorganized company, as well as the company's ability to obtain credit. Mercantile and, perhaps, short-term bank loans.
Each class of rights holders has to vote on a term. For the plan to be accepted, more than half the number and two-thirds of the total rights in each class must vote in favor of it, and the rights holders can accept more than one plan.
The next step is for the bankruptcy court to hold a confirmation hearing. If rights holders accept more than one plan, the court must select the best one. You can also confirm a plan that has been approved by one class but not by all classes of rights holders. In all cases the reorganization plan has to meet certain standards to be confirmed by the court. These standards are about fair, equitable, and feasible. Once the plan has been confirmed by the bankruptcy court, the debtor must perform according to its conditions. Furthermore, all creditors and shareholders, including disgruntled ones, are bound by the plan.
Bankruptcy reorganization
The difficult aspect of a reorganization is rebuilding the company's capital structure to reduce the amount of fixed charges. When developing a reorganization plan there are 3 steps. First, the total valuation of the reorganized company has to be determined. Perhaps this step is the most difficult and the most important. The technique favored by the trustees is the capitalization of the probable earnings.
The valuation figure is subject to considerable variation, due to the difficulty of estimating probable earnings and determining an appropriate capitalization rate. Therefore, the valuation figure represents only the best estimate of the potential value. Although capitalizing probable earnings is the generally accepted approach to value a reorganizing company, the valuation can be adjusted upward if the assets have a significant liquidation value. Of course, the company's common shareholders would like to see a valuation figure as high as possible. If the valuation figure the trustee proposes is below the liquidation of the company, common shareholders will insist on liquidation rather than reorganization.
Once a valuation figure has been determined, the next step is to develop a new capital structure for the company to reduce these charges. The total debt of the company is decreased, shifting it in part towards amortizable bonds with profits, preferred shares and common shares.. In addition to reducing it, the terms of the debt can be changed. You can extend the maturity of the debt to reduce the amount of the annual obligation of the amortization fund. If it is estimated that the reorganized company will need new financing in the future, the trust may feel that a more conservative debt-to-equity ratio is needed in order to obtain future financial flexibility.
Once the new capital structure has been established, the last step includes the valuation of the old securities and their exchange for new ones. In general, all secured asset rights have to be fully settled before a claim without preemptive rights can be settled. In the exchange process, bondholders have to receive the par value of their bonds in other securities before distribution can be made. In step 1, set an upper limit on the amount of securities that can be issued.
The common shareholders of a company under reorganization suffer under the absolute priority rule, whereby rights have to be settled in the order of their legal priority. From their point of view, they would much prefer that claims be settled on a relative priority basis. Under this rule, securities are assigned on the basis of the relative market prices of the securities. Common shareholders would never be able to obtain preferred collateral securities in an organization, but they would be entitled to some common shares if their current shares had value. Because the company is not actually being liquidated, common shareholders argue that the relative priority rule is actually the fairest.
Conclusions
Every Merger will allow it to expand its business potential without making additional technical efforts, each time it will have an expanded portfolio of services obtained from the conjunction of the instruments of both entities.
By merging, it seeks to maintain the client portfolio and in turn try to capture them, strengthening itself in said Merger, as long as there is no 100% personalized attention to all clients, they will continue to be more of the same, another bank in the heap. Experience tells us that a client, no matter how small it is, that is, not a corporate client, which is where the Bank focuses more and is right, but those small clients must also try to keep them happy and personalized attention. is the main thing.
One company can acquire another in different ways. The three legal forms of acquisitions are: mergers and consolidations, acquisitions by shares and purchase of assets. Mergers and consolidations are the least expensive to agree from a legal point of view, but require a vote of approval by the shareholders. Acquisitions through shares do not require such a vote and are ordinarily carried out through a direct offer; however, full control is difficult to obtain through direct bidding. Asset acquisitions are comparatively expensive because transfer of ownership of the shares is more difficult. Mergers and acquisitions require a broad understanding of various complicated tax and accounting rules,because they can be taxable or tax-exempt transactions.
Synergy from an acquisition is defined as the value of the combined company less the value of the two companies as separate entities. The shareholders of the acquiring company will win if the synergy from the merger is greater than the premium.
Bibliography
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Capitant, Henri. Legal vocabulary. 6th. Reprint. Editions Buenos Aires, Argentina. P. 290.
Durand rt. J. Latsha. Fusions, scissions et apports partiels d'actifs. 3rd. Edition, 1972. Paris.
Montilla, Roberto l. Commercial law. P. 462.
Michael Jensen, American Economic Review, 1986.
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